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Executives

Max Kuniansky – IR

Michael Yackira – President and CEO

Jonathan Halkyard – CFO

Dilek Samil – EVP and COO

Analysts

Kevin Cole – Credit Suisse

Greg Gordon – ISI Group

S Popurreza – Citigroup

Kip – BGC Financial

Michael Lapides – Goldman Sachs

Brian Russo – Ladenburg Thalmann

Paul Ridzon – KeyBanc

Sarah Akers – Wells Fargo

Kevin Fallon – SIR Capital Management

Chris Ellinghaus – Williams Capital

Andrew Bischof – Morningstar Financial Service

Paul Patterson – Glenrock Associates

David Hast – Bank of America

NV Energy, Inc. (NVE) Q2 2012 Earnings Call July 27, 2012 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the NV Energy Second Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later will conduct a question-and-answer session, instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Max Kuniansky. Please go ahead.

Max Kuniansky

Good morning, everyone and thank you for joining us. By now you’ve probably seen the financial results we announced in the press release issued early today and the slides on our website. Comments we make during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the future performance of the company and its subsidiaries, Nevada Power and Sierra Pacific Power Company.

Forward-looking statements include earnings guidance and estimates or forecasts of operating and financial metrics. These statements reflect current expectations of future conditions and events and as such are subject to a variety of risks, uncertainties, and assumptions that could cause actual results to differ materially from current expectations.

Slide number two gives you more information on the assumptions and factors we consider in making these forward-looking statements and where to go to get more information on our risk factors. You’ll also find reconciliations of certain non-GAAP financial information on our website at www.nvenergy.com.

Let now turn the call over to Michael Yackira, President and Chief Executive Officer.

Michael Yackira

Thank you, Max. Good morning everyone. Thanks for joining us this morning. As I am sure you know in May we announced some organizational changes. Dilek Samil was named Executive Vice President and Chief Operating Officer after having spent two years as our CFO.

Dilek will have reporting to her generation, transmission, distribution, customer service and renewables. As you know during her time as CFO she was instrumental in raising the profile of our investor relations program and played a critical role in major decisions and initiatives for the company including recent changes to our dividend policy and our cost discipline within the whole organization.

I thank her for her accomplishments as CFO and look forward to working with her as a Chief Operating Officer. We were fortunate to attract Jonathan Halkyard to NV Energy as our new CFO. Jonathan spent 13 years at Caesars Entertainment most recently as its Executive Vice President and CFO. He also has experience in operations at that company and started his career on Wall Street. His reputation with the investment community is exemplary and I’m very pleased that he is part of our management team. It is my pleasure to introduce Jonathan to you today. Jonathan?

Jonathan Halkyard

Thanks very much, Michael and good morning everyone. I look forward to meeting and working with all of you. And I’m very pleased to say, in my first report to you, that we had strong financial results in the second of 2012. NV Energy earned $0.29 per diluted share in the three months ended June 30, compared to $0.05 per share for the same period a year ago. If you look at slide three, you’ll see the growth in earnings was largely due to growth in gross margins driven by warmer weather and a general rate increase.

The rate decision is the one we’ve discussed previously, which became effective January 1. It benefited second quarter earnings by $0.10 per share compared to the same period last year. We estimate that favorable weather increased second quarter EPS by approximately $0.11 compared to last year, as this year temperatures were higher than normal during the quarter, and last year temperatures were milder than normal. Specifically, the unusually high temperatures this year increased EPS by approximately $0.07 compared to normal, while weather during last year’s second hurt EPS by about $0.04 compared to normal.

Cooling-degree days in southern Nevada in the second of 2012 were 23% higher than normal and 44% higher than last year. We’ve summarized these weather statistics on slides four and five. Retail mega watt hour sales increased nearly 11% reflecting both favorable weather and a 1.2% increase in the number of customer accounts. We’ve now seen nine consecutive quarters of growth in our customer base, albeit slow in comparison to the period prior to 2007.

Turning items below the gross margin line, higher depreciation and lower AFUDC reduced second quarter earnings by $0.02 and $0.01 per share respectively compared to the same period a year ago. Both of those factors were due primarily to the Harry Allen plant which began operating in May of last year.

As you likely know, the costs and returns associated with Harry Allen were a key component of the rate decision I just mentioned. We held operating and maintenance expenses flat in the second despite increased costs from Harry Allen.

Year-to-date O&M expense is down about $1 million compared to last year. Lower interest expense added $0.02 to second earnings resulting from refinancing activities which reduced the rate on debt outstanding. I also want to point out two special items which helped our year-over-year earnings comparison in the second quarter.

First, proceeds received from a settlement with a vendor helped earnings by approximately $0.01 per share. Also in the second a year ago, we recorded an adjustment for regulatory decision on lost revenue recovery. That adjustment reduced earnings by $0.03 per share last year and, of course, did not recur this year. Now let’s talk about the outlook.

Earnings for the first half of 2012 exceeded our expectations. But as you know, the third quarter provides most of our earnings for the year and summer weather is a major driver of third quarter results. So at present, we’re making no changes to our earnings guidance range of $1.15 to $1.25 per share for 2012.

However, given the results we delivered in the second quarter, there is the potential that this year’s earnings will be at the upper end of that range, assuming normal weather through the second half of 2012. All other assumptions regarding 2012 earnings guidance remain unchanged as compared to statements made on the last earnings call, and these assumptions are listed on slide eight.

In thinking about the third quarter, keep in mind that weather was hotter than normal in the third quarter last year. As shown in slide nine, we estimate that favorable weather increased earnings by approximately $0.03 per share in the third quarter of 2011 when compared to historically normal temperatures.

Also as previously disclosed, in the third quarter a year ago, we reversed an accrual related to termination of a generating plant service agreement. This benefited earnings for the third quarter of last year by about $0.02 per share.

Projected CapEx through 2016 is shown in slide 10. The forecast reflects the additional online project costs which we disclosed in late June in a Form 8-K. That filing estimated the cost increase at $42 million excluding AFUDC for the total project, based on current estimates of the anticipated design changes.

Since this is a joint project, we would be responsible for 25% of the investment. Based on our forecast of capital expenditures, demand growth and other factors we believe we’re entering a period of stable earnings and sustained free cash flow. This should enable us to deliver dividend growth of about 10% per year for the next few years while reducing debt and considering potential investment opportunities.

Some of you have concerns about the Nevada economy, and I would like to make several points on that matter. First our disciplined cost structure will serve us well in a flat demand environment while our investment and distribution infrastructure will enable us to benefit when customer growth rebounds.

Also as you monitor our state’s economy I would encourage you to look beyond short-term metrics such as monthly changes in gaming revenues and tourist arrival in Los Angeles. Those metrics don’t drive demand for electricity in the near to intermediate term. You will find evidence of this on slide 11 and the energy’s megawatt hour sales have stayed relatively stable over the past several years despite difficult conditions in the casino and entertainment sector.

New jobs, improvement in housing markets and population migration from other states are among the factors that will drive resurgence in the Southern Nevada economy and as we wait for those trends to reestablish themselves, we expect to deliver stable earnings and growing dividends to our shareholders. I really look forward to meeting all of you in the near future.

And now I’ll turn the call back to Michael.

Michael Yackira

Thanks, Jonathan. I’m pleased that our second results were better than expected driven primarily by weather. However as Jonathan said, if we have normal weather for the rest of the year, it will likely be at the upper range of our guidance. So we’re not going to change our guidance at this stage.

On June 29th we filed as required our Triennial Integrated Resource Plan with the Public Utilities Commission of Nevada with planning recommendations for our Southern Nevada utility for the next 20 years. While our customers are benefiting greatly from our investment and highly efficient natural gas power plants our filing outlines the possibility of additional generation later in this decade projected in the filing to be in 2018.

We are seeking authorization to spend about $9 million over the next two years to identify possible size for new generation and to begin the permitting process for new gas fired generating units. The RRP includes an update regarding the online project as well. As a reminder online is a 500 kilovolt transmission line that will for the first time electrically connect our Northern and Southern systems.

Besides allowing for joint dispatch of NV Energy’s generation, online will provide transmission access for renewable energy projects throughout Nevada. As stated in our recent 8-K, the in service date for the project is presently project for no later than the end of 2013 at an estimated cost of $552 million based on the anticipated design changes. We still plan to merge our two utilities on or about the in-service date of online. That will require us to file for regulatory approval of the merger about six months before online is complete as shown in slide 14.

About a year ago, we first mentioned the renewable transmission initiative, a process to access the interest of renewable energy developers and obtaining transmission service from renewable energy zones in Nevada to other markets. We’ve completed our assessment and determined that it is insufficient to proceed with the project at this time. While we are disappointed, we remain committed to exploring other avenues for transition investment and we’ll keep you informed about any progress in that regard.

Our smart meter and smart grid project, NV Energize, is on schedule to be completed by the end of this year. Just this week we completed the one millionth installation of the 1.4 million meters that are to be installed throughout the state. As we near completion of the deployment, we are pleased by our customers’ positive reaction to the information provided to them through NV Energize.

With the completion of the Harry Allen combined cycle project in 2011, we have more than doubled our own capacity over the past several years and have helped Nevada become more energy independent. Despite the fact that these generating plants are reflected in our rates, our investment strategy has resulted in residential customer rates that are about the same as they were five years ago. I am proud of our company and all of our employees who are dedicate to execute this strategy.

Operator, we’re now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Kevin Cole from Credit Suisse. Please, go ahead.

Kevin Cole – Credit Suisse

Hi. Good morning, guys.

Michael Yackira

Good morning, Kevin.

Kevin Cole – Credit Suisse

Dilek, Congratulations on the promotion, and, Jonathan, I’ve actually heard only constructive comments from a gaming counterpart, so I look forward to working with you.

Dilek Samil

Thank you.

Kevin Cole – Credit Suisse

And so, I guess on the – I guess, trying to think about the north rate case, the south rate case and the merger, do you plan on keeping those on independent tracks, or could you see merging those all into kind of a group of filings?

Michael Yackira

Kevin, this is Michael. We are legislatively bound to make filings every three years for utilities. The next prescribed rate filing is about a year from now for the northern utility in June of 2013. So unless there is some legislative change, we’re bound to do that.

However, as I stated, and I think we show on slide 14 I believe it is, a path that talks about what our planned activities are post the merger filing. It’s all related to the completion of our online. Once we have completed online, our request will likely be in the merger filing that the rate case schedule where that’s currently associated with the utility in the south will be the one that we continue to file to follow. It’s certainly possible there could be some legislative changes that are made to timing of rate cases, but it’s well too early to tell whether or not that’s going to take place.

Kevin Cole – Credit Suisse

Okay. Thank you. And then, my last question, on the equity ratio re-ratings at the utilities, do you see that coming in one rate case, or, in – like, in multiple rate cases?

Michael Yackira

I think they’ll be coming in as the rate cases are scheduled. I think that we’ll, of course, consider the north according to our schedule in the middle of next year, and then, really, depending upon the dynamics and how they play out that Michael described, that will determine the way in which we consider the equity ratios for the future rate cases.

Kevin Cole – Credit Suisse

And so I guess – so do you expect to be able to true up to your target of equity ratio by the filing of the 2013 north rate case?

Michael Yackira

I suspect it we’ll be close. We’re certainly in – we’re on that trajectory.

Kevin Cole – Credit Suisse

When you’re talking about targets, you’re talking about a 50% equity ratio?

Michael Yackira

Yes.

Jonathan Halkyard

That’s really a question. I think that our expectation is that over the next several years, next several rate cases, we’ll get there; but as you know, the filing that is made, meaning the date the filing is made is the capital structure that is in rates. It has been irrefutable with this commission to have, for example, a hypothetical capital structure. So whatever is in equity at the time of the filing will be – I can’t really speak for the future of the regulators but the past regulators have not tingered with the capital structure. So our desire is to get closer and closer to that 50% target; but it probably will take longer than one or two rate cases to get there.

Kevin Cole – Credit Suisse

All right. Thank you.

Michael Yackira

Thank you.

Operator

Our next question comes from Greg Gordon from ISI Group. Please go ahead.

Greg Gordon – ISI Group

Thanks. Good morning.

Michael Yackira

Good morning, Greg.

Greg Gordon – ISI Group

So I know you guys are – notwithstanding the weather, you’re seeing some – at least I don’t want to put words in your mouth; but you’re seeing some initial signs of a recovery in the local economy, albeit, obviously not an aggressive one.

In some of the other service territories in other southwest states and cities like Phoenix, we’re really starting to see a transition from speculative buyers of homes to actually people moving in and demand increasing from people moving into homes that have previously been owned by speculator, in places like Atlanta where we had a big condo overbuild. We’re starting to see the rates of this occupancy decline dramatically. I’m wondering whether you can tell us whether you’re seeing the beginning signs of that, and I know you guys, being as conservative as you are wouldn’t want to extrapolate a trend, but could you please tell us if you’re at least seeing the beginning signs of a transition in the local housing market, or not?

Jonathan Halkyard

This is Jonathan. I think we are. You know, we’re now seeing, in Las Vegas, home inventory, the single-home inventory declining in the low double digits so far this year. Pricing has certainly stabilized in single-family homes and is growing, and I think that not only with that; but also in our – just in our steady growth and retail customer accounts in southern Nevada at least, that those measures all point to a slow, but steady recovery in the housing market here in southern Nevada. You know, as it relates to the rental situation, those vacancies are basically flat, so it’s not deteriorating; but I don’t think there’s any real robust recovery on that side.

Greg Gordon – ISI Group

Okay. And how does that compare to sort of the three to five years sort of best case plan for revenue growth if you were to extrapolate a trend from what you’re seeing today, would that be on plan, slightly above plan, below plan?

Jonathan Halkyard

I would say it’s on plan. Our three to five year plan contemplates steady but slow growth in customer accounts and the load, of course, coming from that. So it’s on plan.

Greg Gordon – ISI Group

Thank you.

Dilek Samil

Thanks, Greg.

Operator

And our next question comes from S Popurreza from Citigroup. Please go ahead.

S Popurreza – Citigroup

Good morning, everyone.

Dilek Samil

Hi, Shar.

S Popurreza – Citigroup

Let me ask you, the 1.3% customer account growth that you saw in the quarter, is that driven from new customer connects? What’s driving that growth in residential?

Michael Yackira

I think its 1.2 not the equitable, but it’s really a combination of things? We probably have some statistics on that; but it’s mainly residential.

Jonathan Halkyard

Yeah. It’s 1 point – it’s 1.3% in residential, 1.2% over overall.

S Popurreza – Citigroup

Do you know what’s driving that?

Michael Yackira

I think its turnover of housing.

Jonathan Halkyard

Yeah. It will be related, of course, to kind of the continued decline in the no use as well as just turnover in housing and customer connects?

Michael Yackira

As Jonathan said the inventory is coming down, which is certainly a positive sign. I think the next thing we would want to see is more housing starts; but we are starting to see some housing starts here.

S Popurreza – Citigroup

Okay. Let me ask you, with the capacity shortfall that you have in the 2018, 2019 timeframe, can you remind us what load that you’re assuming through that timeframe?

Michael Yackira

What kind of growth?

S Popurreza – Citigroup

Yeah flat?

Michael Yackira

No. 1%.

Jonathan Halkyard

It’s about 1%.

S Popurreza – Citigroup

Any sense to what the commission’s appetite is to renew PPAs or to build peek? Give a sense of where they could lead towards?

Jonathan Halkyard

I don’t think there’s any – we have to just talk about the IRP for a second. The IRP covers a three-year period of time between the filings. That period is called the action period, and what we ask for in that period is what it is that we’re going to spend.

During that period of time, as I mentioned, we’re asking the commission to spend about $9 million to identify sites for new generation. 2018 need is driven by two things. One is the contract expiring in `17, and the other is growth. So it’s a combination of the two; but since we’re not asking for any specific generation to be built or any new contract or anything that – other than the studies to be done on where the new generation might be, it’s too early to tell what the commission’s position is because we haven’t put forward an actionable request at this stage other than to find sites and to come back later.

S Popurreza – Citigroup

Can that actionable request be – could we see that in the southern filing?

Jonathan Halkyard

It is in the Southern filing.

S Popurreza – Citigroup

Okay.

Michael Yackira

The actionable request is, as I stated looking at sites, starting the permitting process; but since the need is until `18. There isn’t a need to spend capital during this three-year period of time. If there was – if we have the, as we call the high-class problem of seeing growth return in a robust fashion, even though it’s not projected, we have an amendment capability between filings; but I don’t think any of us is projecting that there’s a need for new generation before near the end of this decade.

S Popurreza – Citigroup

Okay. All right. Perfect. Thanks. Jonathan, congrats on the new role, and I think I may have mentioned this, but you’re probably going to have a lot more fun working for NV than Caesars. Thanks guys.

Jonathan Halkyard

I think so.

Operator

And our next question comes from Kip from BGC Financial.

Kip – BGC Financial

Good morning, guys.

Michael Yackira

Hi, Kip.

Kip – BGC Financial

So, Jonathan, welcome aboard. Congratulations, and as sort of as your first cut, I mean, just as sort of a major building blocks, you talked about 1% load growth. You guys have talked about flattish O&M. You know, as sort of just as the CFO coming in, what’s your thinking on EPS – you know, how this translates into EPS growth and what the – you know, what the main drivers will be, say over a three to five-year period?

Jonathan Halkyard

Sure. Well, thanks, and I appreciate the question. It’s well posed. My first response would be that there are a couple of components of value creation for the owners of the company, and a key part of that will be sustained in growth over time of the dividend, and that will certainly be a part of the equation going forward.

In terms of core earnings growth, it really starts with delivering on the returns associated with the investments that we’ve made, maintaining discipline on the cost structure and then over time delivering the balance sheet, reducing interest expense and converting that to EPS growth for shareholders. So I’d really put it in that order. Growing the dividend, delivering on our commitments as it relates to operating and capital investment, delevering the balance sheet, and growing EPS. And I think that’s really going to be the recipe. And of course what kind of unknown in that is our opportunity to pursue capital investments and deliver return for shareholders in that way. But by following that plan that I described that’s going to preserve the ability for the company to deploy that excess cash flow to those opportunities as they arise.

Kip – BGC Financial

Great. And what are you – I know, the company has talked in the past about, and obviously you’re tracking for this year at sort of flat to a little down O&M. How do you see O&M over the next, say, a couple or three years?

Michael Yackira

Well, our ambition is to keep our O&M expenses flat, and I think that that is the right thing to do. We have, of course, a bit of a headwind with absorbing additional expenses related to the Harry Allen plant. We are – we have, so far this year, been successful in absorbing those and keeping O&M down.

We have a number of programs in place, which I think you heard about on prior calls, around becoming more efficient as it relates to our O&M expenses, and so our objective remains to keep those expenses flat over that timeframe.

Jonathan Halkyard

Just let me add one thing to that Kip. With the full deployment of NV Energize, we’ll be able to execute against our plan to reduce operating costs as a result of having the full deployment, and that really won’t be fully effective until 2013, because we won’t be fully deployed until 2013, but that is starting.

As an example, just this week, we have the ability to do remote connect disconnects, which will be very beneficial in reducing our O&M costs, because we won’t have to build truck to do that. So that’s just one example; but I think that will certainly help us going forward, in certainly ‘13, it will.

Kip – BGC Financial

And final area, the potential merger of the two utilities, is that – is there other incremental cost saving opportunities in there, or is that kind of part of this larger picture of flat O&M for a fairly extended period.

Michael Yackira

I think it’s more of the latter, Kip. We’ve taken advantage of most everything that we can in improving the operating performance of the company and finding best practices between the two utilities that had existed until 1999. We continue to look at ways of improving processes.

I think the one thing that will improve for the customers will be through joint dispatch. That certainly will help in reducing fuel costs and purchase power costs. But as far as operating costs are concerned, I think we’re squeezing ourselves down pretty well, and the good news is the operating performance is still very attractive.

Kip – BGC Financial

Very good. Thank you.

Michael Yackira

Thanks Kip.

Operator

And our next question comes from Michael Lapides from Goldman Sachs. Please go ahead.

Michael Lapides – Goldman Sachs

Hey, Michael. Congratulations for a great start to 2012, and Jonathan, welcome. Look forward to meeting you.

Michael Yackira

Thanks Mike.

Jonathan Halkyard

Thanks Mike.

Michael Lapides – Goldman Sachs

Rate case, Michael, I just want to make sure I understood something, and I may have misread the legislation, so don’t hold this against me. I thought the legislation state that you had to file a rate case no later than that certain date, three years, but that you actually could file if you wanted to file a little bit early. But your comments at the beginning of the call make it seem like I’m inaccurate, and that it’s much more of a prescribed you have to file on kind of X date, which would imply that you can’t actually accelerate the NV Energy sales rate case to coincide with the timing of the merger.

Michael Yackira

I’m sorry if I gave you that impression. What I meant to say is we’re required by Law to make the filing at a certain date, and that requirement continues, but we could make rate case filings anytime we want. We haven’t done that, wanting to assure that we’re not overburdening either ourselves or commission staff or others; but if there was a need to do that, we would do that. So I’m sorry if I gave you the impression that we didn’t have that opportunity. We do. But we haven’t taken advantage of that opportunity.

Michael Lapides – Goldman Sachs

Why – what’s the argument against filing a joint case six – in summer of ‘13 for new rates to come online in ‘14 right after online comes online and the merger closes?

Michael Yackira

We would need a merger filing first.

Michael Lapides – Goldman Sachs

Got it. Got it. You’ve got to get the merger filing done approved and then clean financials with the combined companies to file on historical past year.

Michael Yackira

Exactly. We have two separate legal entities today. They are recognized as separate legal entities. We would have to merge them in to one legal entity in order to have one rate case.

Michael Lapides – Goldman Sachs

Got it. So the commission wouldn’t let you do kind of a pro forma with the actual published financials of the two entities jointly with the merger case?

Michael Yackira

I highly doubt it.

Michael Lapides – Goldman Sachs

Okay. Thank you, guys. I much appreciate it.

Michael Yackira

Thanks, Michael.

Operator

And our next question comes from Brian Russo with Ladenburg Thalmann. Please go ahead.

Brian Russo – Ladenburg Thalmann

Hi, good morning.

Michael Yackira

Hi, Brian.

Brian Russo – Ladenburg Thalmann

Most of my questions have been asked and answered; but just can you remind us of the number of megawatts of the PPA that rolls off later in the decade?

Michael Yackira

Five hundred megawatts, Brian.

Brian Russo – Ladenburg Thalmann

Okay. So that’s we should kind of use that as a benchmark if we want to estimate the dollar amount of generation you might need?

Michael Yackira

Not necessarily. I think if you take a look at the IRP, it’s tried to spell out what the opportunities might be for us, potentially, come 2018; but again, it’s much too early. We’re talking about five years from now before that contract rolls off. We also have renewables wrapping up during that period of time. So I think it’s just too early to tell what that new generation might look like.

Brian Russo – Ladenburg Thalmann

Okay. And then in terms of debt reduction going forward, are we just – are you just going to wait for some of the near-term debt to mature, or will you look to prepay that, just trying to get a sense of the trend – the near-term trends in the equity ratios at the utilities.

Michael Yackira

Well we have a bit outstanding as of the end of the quarter? It was 110 million outstanding under the revolver in the south, and that will be retired first, of course, and then we’ve got a maturity of 250 million in the northern utility in September, September of 2013. But that being said, to the extent there’s an economic opportunity for us to retire some of the debt early, we look at that continually and we’ll do it if it’s a MPP positive for us.

Brian Russo – Ladenburg Thalmann

Great. And lastly, can you just remind us what the equity ratios are at the utilities as of the end of the second quarter?

Jonathan Halkyard

Sure. At the end of the second quarter for the southern utility that 45.1%, and in the northern utility 45.5%.

Brian Russo – Ladenburg Thalmann

Okay, great. Thanks a lot.

Operator

And our next question comes from Paul Ridzon with KeyBanc. Please go ahead.

Paul Ridzon – KeyBanc

Good morning. Congratulations, Jonathan. I’ve heard good things about you from Dennis Forest. I just had a couple of questions. Did you comment on the RTI, and then secondly, what’s driving interest line year over year?

Michael Yackira

Paul, let me take that first. It’s Michael. I did comment on the RTI and said that we were not going forward because of lack of response to the follow-on phases to RTI, but it’s not stopping us from looking at other transmission opportunities even though they’re not particularly defined at this stage.

Paul Ridzon – KeyBanc

Okay. Thank you.

Jonathan Halkyard

In terms of interest expense, it’s really all from rate improvements due to Dilek’s good work over the past year. We refinanced $350 million in the South last year, and then late last year, we refinanced the holdco debt, and then earlier this year we, as you know, we refinanced $130 million bond in the south through the revolver. So all of those enjoy 300 basis point to 400 basis point rate improvements, and that will get you to the year-over-year interest expense change.

Paul Ridzon – KeyBanc

Were there any debt deficiencies that drove that or was it just all rate?

Jonathan Halkyard

No. It was all rate.

Paul Ridzon – KeyBanc

Thanks again.

Operator

And our next question comes from Sarah Akers with Wells Fargo. Please go ahead.

Sarah Akers – Wells Fargo

Good morning, everyone.

Michael Yackira

Good morning, Sarah.

Sarah Akers – Wells Fargo

As a follow-up to the question on the PPA expiration, would there be an RFP process to replace that power or is it all handled through the IFP? And then secondly, is there any reason why signing another PPA with the current counter party wouldn’t be considered?

Michael Yackira

I think all things would be considered, but it’s just too early to make any statements or any potential outcomes to that. The way it’s worked in the past is we put forward what our needs are and we put forward how we’re going to meet those needs. I don’t think that there would be any difference going forward. But that is done through an IRP process. Whether I’d be through the IRP itself, we try a new filing or through its amendment but it’s way too early to decide or recommend anything to the commission at this stage.

Sarah Akers – Wells Fargo

So it’s not necessarily an IRP where everyone kind of bids in and there’s a competitive process. It’s primarily handled through the IRP?

Michael Yackira

Yes.

Sarah Akers – Wells Fargo

Got it. Thank you.

Operator

And our next question comes from Kevin Fallon with SIR Capital Management. Please go ahead.

Kevin Fallon – SIR Capital Management

Good morning. Just a question in terms of the future rate case to bring the equity ratios up at the utilities. When you guys look forward, do you look the at those rate cases that you would need actual cash rate relief to be able to achieve the current authorized on the higher equity balances, or when you factor in things like the joint dispatch savings and whatnot, that’s basically looking to those case to just validate the current higher ROEs.

Michael Yackira

Let me take that Kevin. We would not make a rate filing that was only predicated on changes to the capital structure. The rate filing incorporates all changes, capital O&M and capital structure, meaning capital investment O&M and capital structure and changes to both. But we would not make a filing solely to change the capital structure and the rates associated with the ROE and equity layer.

Kevin Fallon – SIR Capital Management

But do you need – do you actually need cash rate relief to achieve the current authorized on a higher equity basis? I know, because capital expenditures are relatively controlled, you’re paying down interest, you have your O&M savings and you have top line growth. That’s what I’m asking. Obviously, you’re not going to make a case just to validate it, but it doesn’t look like you need a lot of rate relief to achieve the current authorized on a higher equity basis.

Michael Yackira

We don’t think of it that way. We just – we don’t time the capital structure to the rate filings. The equity improves over time because of retained earnings and when it’s appropriate to make rate filings as Michael Lapides said, if we made rate filings in between rate cases, it would be a filling made at the capital structure, costs of capital associated with it at that time, even though that not contemplated at this stage. But it’s a combination of several things, not looking at the one line item of equity to drive the decision to make a filing or not.

Kevin Fallon – SIR Capital Management

Have you guys quantified the size of the joint dispatch savings that you’re expecting?

Michael Yackira

Yeah. We do and we did when we made the filing for online, and we did again when we made the IRP filing.

Kevin Fallon – SIR Capital Management

And could you just remind us what those are?

Michael Yackira

I don’t I remember. We could get back to you. I’m not sure exactly what they are.

Kevin Fallon – SIR Capital Management

Okay. Thank you.

Michael Yackira

Thank you.

Operator

And our next question comes from Chris Ellinghaus with Williams Capital. Please go ahead.

Chris Ellinghaus – Williams Capital

Hey, guys. Good morning.

Michael Yackira

Hi, Chris.

Chris Ellinghaus – Williams Capital

And welcome aboard, Jonathan, and congrats to Dilek as well. In terms of commercial activity, can you give us a little company color on what you’re seeing in terms of the commercial space?

Jonathan Halkyard

It’s Jonathan. In the commercial space, generally flat. There has been some migration, the growth rates you’re seeing in customer counts is generally migration from commercial to industrial and vice versa both in the north and the south, I would say, generally flat right now.

Chris Ellinghaus – Williams Capital

Okay. And there’s going to be a trend for refurbishment and I guess upgrades of casinos and not new construction, but that would lead to some construction jobs have you seen any projects announced locally for significant casino upgrades?

Dilek Samil

The only one that – well upgrades, sure. I think MGM has a couple of major renovations going on, one at the MGM Grand, as I recall, and Caesars has a number of smaller renovations going on, mainly at Caesars Palace. I think probably the largest new construction project of note is the development – the link in the observation wheel on the east side of the strip. And, of course, we just have completed here in southern Nevada a world-class new international air terminal at the Karen Airport. Those are the large projects that really come to mind at this point, and they’re very meaningful for sure.

Chris Ellinghaus – Williams Capital

Okay, great. Thank you. Can you just review a couple of things about the merger in order to establish the legal entity in time for next year’s perspective rate case, when do you anticipate that needs to be filed, can you just talk a little bit, particularly in light of what you’ve been doing on O&M, what you’ve learned about merger benefits that you will put forth in the filing, what’s new that you’ve learned through that process?

Dilek Samil

This on page 14, we have a chart that shows what activities we’re expecting to happen with respect to the merger. As we’ve been saying all along, the merger filing would be predicated and timed based on the expected completion date of online, and it would be about six months or so ahead of the completion of online. So that is the gating factor for the merger filing. You say merger savings. I think I answered that question before.

Chris Ellinghaus – Williams Capital

Not so much merger savings numbers per say. I’m thinking just in terms of overall merger benefits, and what did you learn through your stream-lining process and best practices about how the merger is going to benefit shareholders and customers?

Michael Yackira

Well the merger will benefit customers primarily through joint dispatch. Most of, if not all, of the improvements we have made in operations have already been – have already been recognized, and we continue to look at ways to improve our cost structure through a variety of things. I mentioned earlier the full deployment of NV energy size, which should help keep our O&M in control for 2013.

We have through the past six years have something internally called achieving our full potential where we have teams that come forward with process improvement initiatives that not only reduce costs but improve our performance, and I expect that since that is part of the corporate culture, that that will continue. Along with joint dispatch, we’ll have the need for lower reserves because we’re going to be sharing our reserve margins across both companies, and what we haven’t quantified, because I don’t think it’s all that material, it certainly will be less aggravating, is not having to make two filings with everything that we do with our commission. We’ll only have one rate case, we’ll only have one IRP, we’ll only have one DEA. All those things will save money; but I don’t know that it’s particularly material. I think it’s more time used rather than – the time used on something different rather than cost savings.

Chris Ellinghaus – Williams Capital

Well, that’s certainly a cost savings for the commission, too. Have you updated your expectations for the value of joint dispatch of late?

Michael Yackira

We did, in the IRP, and as I mentioned, I’m in the sure what that is. If you want us to get back to you we can.

Chris Ellinghaus – Williams Capital

Okay. Thanks a lot, guys.

Michael Yackira

Thanks, Chris.

Operator

(Operator Instructions) Our next question comes from Andy Bischof with Morningstar Financial Service. Please go ahead.

Andrew Bischof – Morningstar Financial Service

Hi, good morning, everyone, and congrats. I was wondering if you could – ambition to the commercial comment, if could speak to your industrial demand particularly the mine sector?

Jonathan Halkyard

I think the – there has been some growth in mining load in northern Nevada. It’s been, perhaps a little slower than we might have anticipated a number of months ago, but there is nothing that has really changed our long term view of the growth of that sector at this point. So that’s what we’re seeing.

Andrew Bischof – Morningstar Financial Service

Okay. And you mentioned potential transmission of investments. Is it too early to speak of any opportunities?

Jonathan Halkyard

It is.

Andrew Bischof – Morningstar Financial Service

Okay. Thanks very much.

Jonathan Halkyard

Thank you.

Michael Yackira

Thanks.

Operator

And our next question comes from Paul Patterson with Glenrock Associates? Please go ahead.

Paul Patterson – Glenrock Associates

Hi. How are you? Congratulations.

Michael Yackira

Thank you.

Paul Patterson – Glenrock Associates

Just most of the questions have been answered; but on the IRP, I mentioned demand growth being about 1% annually. What is the impact of your energy efficiency efforts and demand response, demand side management stuff on that number? In other words, what would the number be without it?

Michael Yackira

It’s so difficult to be able to quantity something like that. We do know that I think the last statistic that we’ve talked about in either filings or in our investor relations documents said that something like 400 million-kilowatt hours were saved in 2011, I think, something around that. So that’s about 1 in 1.2, 1.3%. But it’s imprecise to be able to point to something specific. It’s almost impossible to point to a specific and say this is what the cause of the conservation has had on demand.

Paul Patterson – Glenrock Associates

Okay. So how should we think about, I guess, customer growth, vis-à-vis load growth for this projected period in the IRP?

Michael Yackira

About the same.

Paul Patterson – Glenrock Associates

Okay. So basically usage being basically flat, and everything being driven pretty much by customer growth?

Michael Yackira

Yes.

Paul Patterson – Glenrock Associates

Okay. Thanks so much.

Michael Yackira

Thanks, Paul.

Operator

And we have a follow up question from Michael Lapides from Goldman Sachs. Please go ahead.

Michael Lapides – Goldman Sachs

Hey, guys. My apologies. Asked and answered.

Michael Yackira

Thanks, Michael.

Operator

And we have no further questions. Oh, I’m sorry. We got one from David Hast from Bank of America. Please go ahead.

David Hast – Bank of America

Hi. Good morning.

Michael Yackira

Hi, David.

David Hast – Bank of America

I just had a question. Can you – have you said what 1% customer growth implies for a change in earnings per share?

Michael Yackira

No, we haven’t. No.

David Hast – Bank of America

How about 1% sales growth?

Michael Yackira

Anyway you do it, I think it depends on how you model it. But we haven’t – we’re giving guidance now; but as we walk through this, our guidance will be predicated on what we see for 2013 as an example; but we’re not ready to provide that guidance yet.

David Hast – Bank of America

Okay. And just on guidance, just want to confirm, you said if the normal weather for the second half of this year, the potential is to beyond the upper end of the guidance range. Is that second half, just to be technical here July 1st, or as of you currently see today?

Michael Yackira

That is as of July 1st, but that is correct. With the normal weather we’re comfortable that there’s the potential to be in the upper end of the range.

David Hast – Bank of America

Great. Thank you so much.

Michael Yackira

Thank you, David.

Operator

And we have no further questions at this time.

Michael Yackira

Well, thanks, everybody for joining us this morning. We appreciate your attention and the questions, and we look forward to seeing you soon.

Operator

Ladies and gentlemen, this conference will be available for replay after 9:30 a.m. today through August 27th, 2012. You may access the AT&T Executive replay system at anytime by dialing 1-800-475-6701 and entering the access code 252400. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701, and 320-365-3844, access code 252400. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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